Despite the cheerful ring of the jingle "We are family" playing in the background, investors could not help but notice the uneasiness that gripped Chinatrust Financial Holding Co founder and chairman Jeffrey Koo (
Later that same day officials with the Financial Supervisory Commission (FSC) swooped down on the offices of China Development Holding Corp, in which Chinatrust Financial has a more than 10 percent holding, prompting speculation that there might also be something fishy in China Development's takeover bid for Taiwan International Securities Corp.
Earlier last week the FSC itself came under heavy fire in the legislature over alleged irregularities in state-controlled Chang Hwa Bank's board resolution to hire financial advisers to decide the terms of a share swap agreement with its biggest shareholder, Taishin Financial Holding Co.
The government is clearly sending a message to the market that it wants to maintain financial order, even though companies caught in these alleged irregularities might cry that the crackdown is a political move to boost the government's image in the runup to the year-end elections.
The slew of bad news pushed financial shares more than 3 percentage points lower last week, underperforming the TAIEX's 0.53 percent decline. But the financial shares' drop is not what concerns investors most, considering the sector's irrational climb on news of Standard Chartered Bank's bid for Hsinchu International Bank three weeks ago.
Rather, investors are concerned about the cloud of uncertainty hanging over the market. With the detention of three top Chinatrust Financial executives, investors wonder what investigators might find in the company's closet and whether this case could shake market confidence the way the scandal over corporate governance did.
Most importantly, the government's actions have raised questions about its determination to pursue privatization of state-controlled lenders.
As financial holding companies are engaged in an unprecedented merger and acquisition frenzy, with state-controlled banks as their prime targets, the government has vowed to restore market order and reiterated its promise not to sell public banking assets to any company that has a poor track record of corporate governance.
But the government's ambiguous policy toward reducing its stake in state-controlled lenders has added to the confusion in a sector that has already been dealt a heavy blow by the string of loan defaults over the years.
As officials who were in charge of the financial reform program have all left their posts over the past two years, the government must make sure that its reform task remains unchanged and will be continued. The probe into Chinatrust Financial and a raft of other scandals could be a watershed for the nation's efforts to strengthen financial supervision, but it should not at the same time sound the death toll for its financial reform.